OPEC Secretary General Initial Comments to the London Energy Ministers' Meeting

Let me begin by thanking the Right Honourable Gordon Brown, the Prime Minister of the United Kingdom, for the opportunity to contribute, once more, to the debate on the impact which financial markets have had, and are continuing to have, on global energy markets.

Today, the financial crisis, triggered by the sub-prime mortgage difficulties in the US, is taking its toll. The world economy is dramatically slowing and, in some regions, even entering into deep recession.

This situation has real and far-reaching implications for the future outlook of the oil industry. It has a compounded, adverse impact on commodity-exporting countries, in particular those whose economies are highly dependent on petroleum export revenues.

These recent developments amplify the concerns expressed in Jeddah regarding the impact of unguided financial markets on the price of oil and its volatility. Now, there is a sense of urgency to the Jeddah Statement’s call for improved transparency and regulation of financial markets.

We welcome the focus of this Meeting on what is clearly a very important matter.

The extremely high volatility of the oil price during recent months has been well documented. In the summer, prices were driven to record highs by unlimited speculation, as the dollar weakened and investors sought cover in commodity markets. More recently, as the financial crisis deepens and the state of the real economy worsens, the price of crude oil has tumbled.

However, lower crude prices do not translate into equally lower prices at the pump. The price that the end-consumer pays comprises significant amounts of taxation. This is especially the case in Europe and Japan.

We have been through similar oil price cycles in the past. We all know that extreme oil prices, whether too high or too low, are as bad for producers as they are for oil-consuming countries.

Today, we are already hearing about cut-backs to spending on new projects, in response to deteriorating economics. The new-found difficulties in raising credit are also contributing to slowing investment across the whole industry.

OPEC has always responded – in an adequate and timely manner – to increases in oil demand and to weather-related supply disruptions. Such responses have been made possible thanks to the spare capacity, developed and maintained by its Member Countries.

The Organization increased its supply by close to 5.0 mb/d, for example, between 2002 and last year. Member Countries have also implemented huge investment programmes to increase production capacities.

The oil industry is now faced with a severe reduction in oil demand, due to the financial crisis that has its roots in the industrialized world. This is happening at a time when large new capacities are being put on stream in OPEC Member Countries. They were built, or planned, at a time when costs were very high and they are now in danger of being left unused or delayed.

OPEC took timely action and provided much-needed contribution when the world faced surges in oil demand growth. What is the contribution of large consuming countries in today’s environment of sharply declining demand?

I welcome again the opportunity offered today for a comprehensive and fruitful exchange of views.